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Germany—Public Policy

by Cornelia Spross

December 2010—The effects of the recession have been obvious in the German labor market, with real GDP declining by 6.7% since 2008 (compared to the average decline of 4.8% among OECD countries). Yet despite the sharp decline in output, employment and unemployment rates have remained relatively stable. German unemployment barely declined in 2009—from 7.9% at the start of the recession to 7.0% in May 2010. German scholars attribute this moderate reduction to labor market reforms and increased hiring/retention flexibility on the company level.

Of particular issue for Germany is its aging population. The labor force potential is expected to decrease by 1.8 million persons in the coming decade and by a further 1.8 million persons by 2050. The challenges of the aging demographic in Germany are already occurring in many areas, and many firms have chosen not to employ aged people anymore.

As in the United States, German politicians, unions, employers, and the general public have taken a strong interest in the issues of unemployment and improving the quality of work.

In response, the Initiative 50plus was recently implemented to increase the employment opportunities of adults aged 50 and older and to reintegrate these job-seekers into the labor market. The initiative promotes further training measures with the following components:

Act on the Improvement of Employment Chances for Older People— providing the basis for targeted promotion of older people through further training and lifelong learning

Combined Wage Measure for Older Workers—providing the basis to accept job offers with a low net salary by compensating the difference between the former salary through a temporary benefit.

Integration Subsidy— Employers can receive funds to hire older unemployed or older people at risk of unemployment aged 50+. The subsidy is between 30—50% of the allowable net salary and is paid for a maximum of 36 months. After one year, the subsidy reduces annually by 10%.